KKR's Henry McVey, Head of Global Macro and Asset Allocation and Aidan Corcoran, CIO of KKR's Balance Sheet, has returned from a multi-week road trip through London and Singapore with a materially revised view of the global investment landscape. The full report, Thoughts From the Road: Europe and Asia, October 20261, co-authored with Managing Director and Co-Head of Global Macro Aidan Corcoran and colleagues Changchun Hua and Richard Bullock, carries a headline conclusion that deserves careful attention from every advisor and allocator managing client portfolios today.
The frame has widened. What began as a trip to check in on rates and energy dynamics ended with McVey and team upgrading their conviction on the breadth and durability of the global investment cycle. "Most importantly, I now think that the global investment cycle is broader, more durable, and probably more inflationary than even I had appreciated," McVey writes. AI remains a growth driver, but Defense, Infrastructure, Energy, and supply chain resiliency are now actively competing for the same capital, labour, and power. "AI is only one part of a much larger spending cycle that now includes Defense, Infrastructure, Energy, and supply chain resiliency."
Europe: Composition Is the Story
McVey went to London expecting rates and energy to dominate the discussion, and they did. What he did not expect was the degree to which the composition of European growth had shifted. Business investment, defense, infrastructure, and regional trade are increasingly carrying the load while consumers and housing remain constrained. In the U.K., real business investment is running roughly 10% above pre-COVID levels. In Germany, exports to Central and Eastern Europe are surging even as exports to China fall below Global Financial Crisis-era levels. "Companies and countries are reorganizing supply chains, trade relationships, and capital spending around regional rather than purely global considerations," the team writes.
The political dimension adds complexity. France's fiscal position remains the sharpest fault line in European sovereign bond markets, with spreads to Germany hitting Eurozone wides in recent weeks. The ECB's Transmission Protection Instrument is the mechanism of last resort, but McVey is direct: until the European Commission can attest that French fiscal policy is on a sustainable trajectory, "the ECB's hands will be tied." The team's worst-case scenario is not a 2011 replay but rather a prolonged period of elevated spreads that drag on activity without forcing real fiscal discipline.
Rate forecasts moved higher across the board. The team raised its ECB 2026 year-end rate to 2.75%, the Bank of England to 4.0%, the 10-year gilt yield to 5.25%, and the JGB to 3.1%. Yet McVey is also careful to note that "higher-for-longer" does not mean higher forever. Forward curves, in his view, have overshot on the near-term hiking path. "I am more convinced that inflation and rates have a higher resting heart rate this cycle, but less convinced that the market has the near-term path right."
Asia: The AI Trade Is Upstream
In Asia, the central insight McVey carries home is not the size of AI investment but where the economic benefits accrue. Japan sits largely outside the chip layer yet captures roughly 12% of every dollar spent on datacenters, primarily through equipment, materials, and chemicals. Japan holds approximately 30% of global share in semiconductor manufacturing equipment and close to 50% in materials and chemicals. The macro data confirm the leverage: in 2025, Japan's AI-affiliated value chain represented less than 3% of GDP but contributed more than 20% of GDP growth. "I think that parts of the Japan story are still underappreciated," McVey concludes.
Korea's story is more direct. Semiconductors accounted for approximately 41% of total Korean exports in the first eight months of 2026, with the AI, datacenter, and semiconductor ecosystem accounting for 80% of Korea's GDP growth in 2025. But what moved up McVey's list on this trip was not chips. It was corporate governance reform. Proposed "bear-hug" M&A legislation, modelled on Japan's METI guidelines, has ground-level odds of passage at 60% to 70%. "I left Korea thinking the emerging reform story deserves considerably more investor attention."
Across Southeast Asia and India, the consumer upgrade thesis remains intact but increasingly uneven. India's economy has crossed $4 trillion with a decade of structural reform behind it, but New Delhi's active management of the oil price shock sets it apart from Emerging Market peers. "The consumer upgrade thesis remains one of our strongest structural views on India," the team writes, while acknowledging a near-term pause around $100 oil.
Five Key Takeaways for Advisors and Investors
- The investment cycle is broader than the AI narrative suggests. Portfolios positioned only for AI infrastructure are underexposed to the defence, energy, and logistics capex cycles now running in parallel.
- Inflation and rates have a structurally higher floor. The "Regime Change" thesis is being reinforced, not challenged, by on-the-ground evidence from Europe and Asia. Expect a higher resting heart rate for both, even if the near-term hike path is overstated.
- European opportunity is in the composition, not just the level, of growth. Capex over consumption is the new orienting principle. Logistics, infrastructure, renewables, industrials, and cybersecurity all look positioned to grow above trend.
- Japan and Korea reward patient, upstream thinking. Japan's leverage to the AI buildout runs through equipment and materials, not chips. Korea's reform story is multi-year and early-stage, making it asymmetric for investors willing to hold through the process.
- Stay pro-risk outside government bonds; own quality in credit. KKR's team maintains an overweight to real assets and productivity-driven corporate reform stories in Global Private Equity. In credit, "now is not the time to stretch down the quality curve."
Footnote:
1 McVey, Henry H., Aidan Corcoran, Changchun Hua, Richard Bullock, Bola Okunade, Asim Ali, and Allen Liu. "Thoughts From the Road: Europe and Asia." KKR Global Macro & Asset Allocation, Oct. 2026, https://www.kkr.com/content/dam/kkr/insights/pdf/thoughts-from-the-road-europe-asia-october-2026.pdf.
